The renewal season at Italian large banks goes on, but some big players are (still) missing

Posted on October 24, 2012

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The Italian banking system has been living a season of deep renewal started on autumn 2011 and continued with the last EGMs of Banca MPS and Intesa Sanpaolo on October 9th and 29th respectively.

The co-operative banks were the most affected, in particular Banco Popolare and Banca Popolare di Milano (BPM), that followed completely different needs and methodologies. Banco Popolare passed from the traditional governance system (including the Board of Directors and the Board of Statutory Auditors, both elected by the shareholders) in order to simplify the decision-making process and to reduce the costs linked to the dual system. BPM moved on the opposite direction, adopting the dual system, because the bank needed to strengthen the level of internal controls and the independence of the governing bodies from internal structure’s interferences.

The amendments to the Banca MPS’ Articles of Association, approved by the EGM held on October 9th, also represented a turning point for the bank’s corporate governance, at least on a “political” perspective. The new Articles of Association reduce the decision power of the shareholders, that are no more able to vote on asset sales. Such provision is in line with the market practice, but it raised large protests due to the quite difficult climate at the Tuscan bank. The employee-shareholders strongly contested the amendments, that strongly reduced the possibility of internal debates on so delicate issues, that involve their own professional future. Independent shareholders should be concerned too by the last EGM’s outcomes, but mostly because of another resolution: the authorization to increase the share capital of maximum €1 billion without pre-emptive rights. The amount of the capital increase represents approximately 30% of the current bank’s market capitalization and it will likely change its ownership structure, by strongly diluting existing shareholders’ rights. Concerns also arise over a statutory provision that was not cancelled: each shareholder’s votes are limited to 4% of the share capital, with the exception of the Fondazione MPS (that is destined to become the former controlling shareholder). Thanks to this provision, all new shareholders coming from the next capital increase will be enabled to only 4% of votes, versus a much higher investment: in order to accept such limitation, they will likely ask a huge discount on the share price, worsening the unacceptable dilution of existing shareholders’ rights.

The upcoming EGM of Intesa Sanpaolo, on October 29th, will likely be held in a more relaxing atmosphere, but it will still involve relevant changes to the dual governance system of the bank. From 2 to 4 managers of the banking group will be appointed as members of the Management Board, together with the CEO. A so strong presence of executives may raise some concerns over the independence of the Board. Nonetheless, an adequate level of internal controls will be provided by the mandatory majority of external members and by the sufficiently independent composition of the Supervisory Board. The strong connection between the Management Board and the operating structure will simplify the decision-making process, aiming to improve the efficiency also through the elimination of the Board’s executive commissions.

UniCredit started a deep reorganization of the operating structure already in 2010, with the definition of the centralized banking structure and the territorial divisions (that will be completed in 2013), but the change is much  slower on a corporate governance perspective. Following the €7.5 billion share capital increase of January 2012, the UniCredit’s ownership structure slightly changed: the banking Foundations and the Central Bank of Libya diluted their shares, while the Abu Dhabi sovereign fund became the main shareholder and others, such as Caltagirone and Della Valle, increased their ownerships. The new ownership structure did not affect the governance of the bank: the AGM held on May renewed the UniCredit’s Board of Directors, but the only relevant changes were the reduction of Board members to 19 from 23 and the appointment of the new Chairman, Mr Giuseppe Vita, who is former Chairman of the UniCredit’s partner Allianz SE.

Despite the “large-scale manoeuvres” on the market, at Mediobanca nothing seems to have changed since 2008, when the last business plan was approved and the company abandoned the dual governance system (after only one year). A very good chance for a renewal was given by the new Italian law banning interlocking directorships at financial companies. With 6 resigning directors, Mediobanca is the most affected by the new provisions, but the appointment of the new members are still guided by the allocation of seats among the controlling shareholders: Pier Silvio Berlusconi and Bruno Ermolli are linked to Fininvest, Christian Collin to Groupama, Alessandro Decio to UniCredit, Vanessa Labérenne to Bolloré Group and Alberto Pecci, who is another member of the shareholder agreement controlling Mediobanca. The mandate of all newly appointed directors will expire with the upcoming AGM of October 27th, but the voting outcomes will likely hold no surprises.

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Posted in: Boards, Share capital